The Demand for Money in Austria

Posted: 4 May 2001

See all articles by Bernd Hayo

Bernd Hayo

University of Marburg - School of Business & Economics

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Abstract

In this paper, the demand for real money M1, M2, and M3 is estimated for Austria over the time period 1965-96. The modelling takes place within the framework of a small vector autoregression. To estimate the demand for money, two-equation error-correction models are constructed, which contain the short-run dynamics and the long-run economic equilibrium. It is found that a stable money demand exists for all monetary aggregates. The long-run equilibrium of M1, after accounting for a structural break in 1979, can be characterised as a classical type of money demand, with no interest rate effects and an elasticity of one for real GDP. In the case of M2 and M3, we find a unit coefficient on income and a significantly negative influence of a long-term interest rate. The statistical properties of the estimated short-run money demand equations - considering in-sample and out-of-sample tests - are generally very good.

Keywords: Monetary economics, money demand, Austria, European Monetary Union

JEL Classification: E41, C32

Suggested Citation

Hayo, Bernd, The Demand for Money in Austria. Empirical Economics, Vol. 25, Issue 4, 2000. Available at SSRN: https://ssrn.com/abstract=262335

Bernd Hayo (Contact Author)

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